Mad Money Machine

11 Responses

1. blackark November 2 2006 @ 6:31 am

   My blue chip pick for the Cramer portfolio…….drum roll….
   DNA

2. The Swede November 2 2006 @ 1:34 pm

   Hi Paul!

   When I recieved my book I was really surprised by the size of it. And when I opended it i got even more surprized. It is really a beautiful book with all the paintings and colour graphics. I haven’t worked my way through it yet, but I can tell that it is full of important information.
   I regard it a must-buy if you aren’t lucky to win it like I did 🙂

   Best wishes

   Christian

3. doug_ashley November 2 2006 @ 2:54 pm

   Hi Paul,

   Thanks for the great shows!

   To me, it is not an open and shut case that mutual funds are a superior investments to ETFs. I use them both, hopefully in a complementary fashion. ETFs represent about 14% of my equities.

   ETFs seem to be ideally suited to plugging style/ capitalization/ geography holes in a portfolio. Getting carried away with sector/industry ETFs is probably not a good idea.

   Although ETF purchase and sales are charged commissions, the savings in expense ratio can offset it (unless buying small amounts or making frequent purchases, sales, or rebalancing). Of course, ETFs are probably not good for a person wanting to make monthly purchases or buying less than several thousand dollars at a time (unless they are trading on a non commission basis).

   While it might be possible to find examples at points in time of significant bid/ask spreads for ETFs, the intraday spreads for my 8 ETFs averaged 7 basis points and the highest was 14.

   There are some cases where the ETF seems to make particularly good sense. An example, the Vanguard Emerging Market Fund (VEIEX) and ETF (VWO) have the same composition. The fund has an expense ratio of .45% and the ETF has an ER of .30%. In addition, most brokerages ‘fund supermarkets’ would charge some ‘out of network fee’, and the fund but not the ETF is subject to a .5% redemption fee. Even without considering the out of network fee, my break even purchase amount for a one year holding period is is about $3150 based on $8 per trade commission and 14 basis point bid/ask spread.

   The mutual fund ‘out of network fees’ can be substantial ($50-$165 at Schwab, $75 at Fidelity), and if paid would almost always result in the ETF being more attractive. This may be a good reason to have an account directly with the fund companies which interest you (or at least pay close attention to fees).

   Just because you can, there is no need to frequently trade ETFs. However, with ETFs there is no need to worry about holding periods relative to short term trading or redemption fees.

   Investors should pay attention to sales volumes (liquidity) and possibly premium/discount to NAV when selecting ETFs. Also, you should confirm that the expense ratio is for the ETF is indeed lower than available mutual funds (and that tracking error to the index is reasonable).

   Circumstances which might favor open ended Mutual Funds:
   – You have an account directly with the fund (or otherwise avoid ‘out of network’ fees)
   – You frequently contribute or withdraw cash
   – Relatively short expected holding periods

   Circumstances which might favor ETFs:
   – A liquid ETF with low fees and low bid/ask spread tracks an index where you want exposure
   – You buy fairly significant amounts of a given ETF at a time
   – You have low (or no) cost commissions

   Some analysis is required when defining an investment strategy in either ETFs, open ended mutual funds, or other investments. As an ‘investment hobbyist’, I don’t mind doing some analysis and having a rather diverse set of investments. However, I can certainly understand the appeal to many people of a simple ‘set it and forget it’ which supports dollar cost averaging. People who under perform the relevant indexes without a good reason should consider an adviser such as IFA.

   Whew! All of that said, sometimes ETFs can sometimes be superior investment vehicles for a buy and hold investor with a reasonable time horizon.

   Thanks again for the show! Sorry for being so wordy!

4. AIMster November 2 2006 @ 3:59 pm

   Blue Chip replacement candidate CAG – ConAgra Foods recommended by Cramer on 26 October 2006

5. blackark November 2 2006 @ 8:25 pm

   Yeah I noticed in the Smackdown you already have Genzyme.
   So DNA might be redundant unless you want to swap out of Genzyme and roll that initial investment into Genentech, otherwise it would definitely get buzzed if playing Am I Diversified.

   Did Cramer ring the register Genzyme yet? Seems like you might want to take a little off the table there.

6. blackark November 2 2006 @ 8:47 pm

   I have an idea to make the Select Cramer Portfolio better too.
   If this truly were an actively traded portfolio you would not be riding these things like Slim Pickens in Dr. Strangelove.

   In order to make it more realistic, just implement a 20% gain trailing stop. As soon as you are up 20% bam, ring the register. Move on to the next stock.

   I know you won’t actually do this because it’s a pain in the ass to calculate with the day’s ranges every day, but in the real world, come on you would not seriously be sitting around waiting for someone to call into the lightning round and ask Cramer about XYZ corp just so you could sell it.

   You really are using the same buy and hold mentality with only a fondant of active trading in doing it the way you do.

   If you truly want to emulate Cramer’s style, you would take some off the table or ring the register when the ringing is good, not sit there with drool coming out of your mouth until you are told what to do in the lightning round or on the radio show.

   Someone building a Cramer portfolio with the kind of dollar amounts you are using would also pony up four bones for action alerts plus, would they not? Personally I will save my money for commish.

7. yomomma2000 November 3 2006 @ 11:09 pm

   Hi Paul.
   If you look at the two comments on your website after you sold Pepsi out of the Cramer portfolio, you will really laugh…because now this week he is back to recommending CAT. I think I have mental whiplash from all this. Or is it financial whiplash?

8. jay November 5 2006 @ 2:37 am

   hey mr. boyer, its jay, yes the 14 year old who called your voice mail. it meant the world to me when you aired my message to help me out. your podcast is not only education but entertaining. i took a look at sogoinvest.com and it seems like a good place to start investing. it seemed a little biased against mutual funds which is quite contrary to what i have read every where else. according to sogoinvest.com “over 95% of mutual funds fail to beat the market over the long term”. im going to learn the ropes of the game before i take a plunge into the stockmarket. i am currently reading safety first investing by wade cook. its an entertaining book which provides good strategies. you also might want to recommend your listeners to join a mock-stockmarket. you get a certain amount of fake money an invest in real stocks and the stock perfomances reflect reality. i have joined virtual stock exchange. if you google it, it should be your first result. once again, i would like to thank you for your help and if mr.”sogo” is reading this, thank you too.

9. grasshopper571 November 5 2006 @ 7:20 pm

   Paul, I really like your show! I started listening about six months ago, mainly to get a counter-perspective on Cramer. And, like you, I started to realize that all this trading around leaves you with heart burn and a diminished stock account!

   I sold ALL the stock in my IRA and bought ETFs. I bought the ETFs over mutual funds because of their lower expense ratio and because they function like a “closed end” mutual fund, meaning the fund manager doesn’t have to sell stock when other people sell their positions. This makes ETFs, in my opinion, a little better than mutual funds, if you plan to buy and hold for a long time. If you have a little money, and plan to contribute regularly, then no-load mutual funds are the way to go.

   As for a stock for the Cramer Portfolio, I would suggest COF, or Capital One Finance. I really have no particular reason for picking COF, except I like their credit card commercials.

   Anyway, keep up the good work! I look forward to your next podcast each week, for my fix of new music, a tool and a guru on the roulette wheel.

   -Mark in Kansas City

10. KPR2THFXR November 6 2006 @ 11:01 pm

    Paul, I have been listening to your podcast since show 3 and I truly enjoy it. Your show format has improved with better sound, music and a less jumpy format. Keep up the good work,and I look forward to listening a long time for some real perspectives.

    As I was listening to show 45 today, it occured to me that there seems to be a growing number of index funds, as the crowd goes and people see the benefit of index funds, the sellers follow. I heard you talk about index funds trying to beat the market and I realized that some of these so called “indexes” have increased risk as promises of returns increase (the same problem that individual stocks have). By definition, an index should be the market not beat the market so what gives? The same problem of chasing returns surfaces, and as you or I know, no one can beat the market long term. As more of these index instruments appear we must be vigilant to avoid what did us in in 2000 —greed. Long term data shows that the market increased OVER TIME and with a balanced approach to investing we will do as good or better than most analysts. Be smart, be patient and let your gains compound over time, and definitely start early.

    So what does give with index funds? Are more of them appearing because the fund companies are making money selling them or managing them? Or are you paying for their expertise in following the market? Why exactly are more appearing? And by the way do you favor weighted funds based on market cap?

    Finally I have gone to IFA website, and downloaded their podcasts on the 12 steps to investing. You may want to alert your listeners to these podcasts.

    Thanks again for your hard work, I will keep listening and telling my friends about your show.

    Keith in Illinois

11. stocktraderstu November 10 2006 @ 12:04 pm

    Hi Paul.

    I am enjoying the show, and the stockmarket challenge.

    Just leaving a short message to tell everyone that my madmoneymachine portfolio is gaining on the others. I hope there is enought year left for me to catch the leader.

    Good luck to all.

    Also. Here is a pick for the Cramer portfolio. SIRI (Sirius Satellite Radio) He had the CEO on the other night a changed his vote from laggard to buy, buy, buy.